Microsoft Misses Financial Estimates for Q3

On Thursday, Microsoft said it expects a higher effective tax rate from licensing shifts and revenue deferrals, along with lower-than-expected earnings per share (EPS), during its quarterly earnings report.

For the quarter ended March 31, Microsoft reported a 25% plunge in adjusted GAAP-based net income of $3.8 billion, and a revenue decline of 5.5% to $20.5 billion. Putting aside those deferrals and adjustments, Microsoft said non-GAAP revenues of $22 billion increased 1.6%, and EPS was flat at $0.62 or $5.1 billion. Consensus estimates had pegged Microsoft returning $0.64 in EPS.

Microsoft attributed the drop due to a "catch-up" adjustment to account for the anticipated increase in its effective tax rate from the deferrals, along with the shift in licensing terms as customers switch from traditional software licenses to the cloud.

"Overall, we had a solid quarter," said Microsoft CEO Satya Nadella in his opening remarks during Thursday's earnings call.

Microsoft's cloud business continued to grow, Nadella said on the call, noting it's on a $10 billion run-rate for the current fiscal year, and on pace to reach the company's goal of $20 billion by its 2018 fiscal year.

In total, Microsoft's Productivity and Business Processes unit grew 1% (up 6% in constant currency) to $6.5 billion. Office commercial products and cloud services revenue went up 7%. Dynamics, including licenses and cloud services revenue, went up 9% in constant currency and CRM Online seat adds more than doubled.

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.